The Personal Allowance Stealth Tax - What It Means As It Gets Worse Each Year

24th January 2026

In the UK context (which is what these figures relate to), the "personal allowance" is the amount of income you can earn each tax year before you start paying income tax. That allowance has been frozen at £12,570 since April 2021 and, under current policy, will remain at that level until at least April 2031.

Tax thresholds normally increase each year with inflation. Because the personal allowance hasn't been uprated, its real value has fallen and taxpayers are paying more tax on earnings that would have been tax-free if it had been indexed.

Here are the key estimates from official forecasts and tax-analysis bodies for what the personal allowance might be now or in recent years if it had increased with inflation instead of being frozen:

Estimated Personal Allowance Without the Freeze

2024/25 tax year

Would have been around £15,220 - £15,480 instead of £12,570.

2025/26 tax year

Would have been around £15,480 rather than £12,570.

Forecast for later years if uprated with inflation

By 2027/28, the personal allowance could have reached around £16,385.

Without the freeze, some forecasts put it above £17,000 by 2030/31.

What This Means

Because the allowance is frozen, the tax-free portion of income is about £3,000-£4,000 lower than it would be now if it had been indexed to inflation.

This shrink in the real value of the allowance increases tax paid by individuals at all income levels because more of their earnings become taxable.

The difference grows over time: the longer the freeze, the larger the gap between the frozen threshold and what it would be if indexed.

Why it matters

This policy is often referred to as “fiscal drag” — as wages rise with inflation but thresholds don’t, more people pay tax, and at higher rates, even though their real incomes haven’t increased.